Concept of Holding Company

Concept of Holding Company

A holding company is a business entity—usually a corporation or limited liability company (LLC). The creation of the relationship of holding and subsidiary companies is a form of combination. The procedure involves the acquisition of shares in the absorbed company and not its assets with or without liabilities. Holding companies are protected from losses accrued by subsidiaries—so if a subsidiary goes bankrupt, its creditors can’t go after the holding company.

A holding company is a company that doesn’t conduct any operations, ventures, or other active tasks for itself. The procedure involves the acquisition of shares in the absorbed company and not its assets with or without liabilities.

The separate legal entity of the absorbed company is, therefore, not disturbed. The parent corporation can control the subsidiary’s policies and oversee management decisions but doesn’t run day-to-day operations. In other words, the subsidiary company continuous its business as usual because the acquisition of controlling interest by another company does not mean its liquidation. The holding company can own 100% of the subsidiary, or it can own just enough stock or membership interests to control the subsidiary.

A holding company is a company that doesn’t conduct any operations, ventures, or other active tasks for itself. A company may acquire either the whole or the majority of the shares of another company so as to have a controlling interest in such a company or companies. The controlling company is known as the ‘holding company’ and the so controlled company or the company whose shares have been acquired is known as ‘subsidiary company’ and both together are known as ‘group of the company’. Holding companies enjoy the benefit of protection from losses. Each subsidiary has its own management who run the day-to-day business. If a subsidiary company goes bankrupt, the holding company may experience a capital loss and a decline in net worth.

Holding companies are able to nominate the majority of the directors of the subsidiary company. These companies can also serve the purpose of protecting an individual’s personal assets. The company gets such right which it purchases more than fifty percent shares of another company. With a holding company, those assets are technically held by the corporation, and not by the person, who is consequently shielded from debt liabilities, lawsuits, and other risks. So, the holding company is one that controls one or more other companies either by means of holding more than fifty percent shares in that company or companies or by having the power to appoint the whole or majority of the directors of those companies. These companies support their subsidiaries by using their resources to lower the cost of much-needed operating capital. A company controlled by a holding company is known as a subsidiary company. The relationship between the mother company and that of the corporations they control is called a parent-subsidiary relationship. In such a case, the mother company is known as the parent company while the organization being acquired is called a subsidiary.